U.S. and Iran appear to be moving toward a peace framework and oil prices have begun to ease. Market participants are adjusting expectations for the geopolitical risk premium and the potential implications for inflation rates and risk assets.

Kevin Warsh will preside over his first FOMC meeting as Fed Chair which introduces a major variable for markets. Markets will interpret his remarks for signals about both interest rate policy and balance sheet intentions.

Warsh was appointed by the President which has generated debate about the Fed's likely policy posture. On the surface Warsh is perceived by some as more open to rate cuts than his predecessor but he will face an inflation rate that remains above the Fed's stated target and a labor market that has stayed stronger than expected.

Energy price volatility has complicated the immediate case for rate reductions. As a result many market participants expect the Fed to maintain the current policy rate at his first meeting rather than make an immediate shift toward easing.

Warsh has advocated for shrinking the Fed's bond portfolio which would reduce liquidity even if rates are lowered later. Balance sheet reduction can influence yields and liquidity which investors will weigh alongside decisions about the policy rate.

The portfolio positioning described here has been adjusted over recent months with a focus on companies that show stronger balance sheets and resilience to changes in liquidity or moderately higher interest rates. That repositioning responds to the prospect of reduced central bank liquidity.

Market attention is also returning to smaller companies after the One Big Beautiful Act preserved several business tax provisions including bonus depreciation R&D expensing and interest expense deductions. Those provisions affect the tax profile of many firms.

Smaller companies tend to be more sensitive to borrowing costs taxes and domestic economic growth. Those sensitivities will be relevant as market participants reassess sector and market breadth exposures.

Key economic releases this week include industrial production housing starts and U.S. retail sales. The FOMC interest rate decision and a Fed Chair press conference are scheduled midweek and there is a stock market holiday for Juneteenth at the end of the week.

• Industrial Production matters for industrial holdings
• Housing Starts matters for real estate construction holdings
• U.S. Retail Sales will be a data point for consumer activity
• FOMC Interest Rate Decision and the Fed Chair press conference are scheduled midweek
• Stock Market Holiday Juneteenth

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